Back-To-School Shoppers: Hunting For Tax Breaks And Bargains

Retailers are optimistic about back-to-school sales because the job market has been strengthening and gas prices have been falling.

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Originally published on August 15, 2014 8:27 am

For millions of Americans, August is a month for relaxing and basking in the summer sunlight.

Those are the people without children.

The households with students are likely to be scurrying around under the bright florescent lights of big-box stores, searching for back-to-school bargains on clothes, shoes, notebooks, backpacks, computers and dorm furniture.

And many shoppers are timing their purchases to take advantage of sales-tax holidays for school-related items, hoping to keep a bit more in their wallets.

The National Retail Federation predicts families with K-12 students will spend an average of $670 on classroom supplies and school-age apparel this season. That's about 5 percent more than in 2013's July-through-September retail season.

But forecasting is a tricky business because the U.S. economy remains so uneven, giving off conflicting signals. These are some reasons why sales may turn out to be stronger than expected:

-- Hiring is heading up, so more parents are getting paychecks. The Labor Department's latest data show job openings rose in June to the highest level in more than 13 years.

-- Gasoline prices have been easing. An average gallon costs around $3.46 now, compared with $3.60 a month ago. Every penny saved at the pump can help pay for notebooks and crayons.

-- Consumers are feeling fairly good. Only 1 out of 5 parents of school-age children says the economy is worse than last year, according to a poll conducted by Google Consumer Surveys.

-- Merchants are offering very deep discounts on certain items, which should help motivate shoppers to get out of the house and spend. Those "door-buster" type sales include everything from $4 T-shirts at Old Navy to $99 dorm-friendly futons at Wal-Mart.

But many analysts see reasons for lowered expectations, including these:

— Consumer confidence is fairly good for now, but may start to erode because of bad news coming from the Middle East, Africa and Russia. "Caution is the word because the market is very unsettled right now," says Ron Friedman, a retail consultant with Marcum Group. "Folks are nervous about everything."

— Wages are still getting squeezed. Hourly earnings are up just 2 percent this year, a little below the annual inflation rate, which means buying power has shriveled a bit. The retail trade group says the pay squeeze has more than one-third of back-to-school shoppers looking for store or generic brands. "We know Americans are still grappling with their purchase decisions every day," NRF chief executive Matthew Shay said in a statement.

Given that many shoppers still face stiff economic headwinds, retailers in 17 states push their lawmakers to continue offering sales tax holidays. Typically, the tax breaks cover a broad array of school-related items, from shoes to crayons, and last from a weekend to a full week. Retailers say they are popular with shoppers who appreciate the tax relief.

But in the past couple of years, a few states have dropped the holidays to help keep state coffers full. For example, North Carolina ended its back-to-school tax break this year as part of an overall tax reform program.

Republican state Rep. John Szoka, one of the bill's sponsors, said taxpayers were, in effect, subsidizing retailers' advertising. He says retailers in his hometown of Fayetteville are offering big discounts to attract shoppers, so they don't need help from the state.

"Sales-tax incentive on top of a sale like that isn't going to spur someone to go and buy something," Szoka said.

The Tax Foundation, a nonpartisan research group, says the tax holidays don't make a difference for total sales, but only shift which weekend customers might shop. "Consumers are buying what they would have bought anyway, but just doing it at a different time," said Liz Malm, an economist with the foundation.